Interview with Giulio Coraggio, Senior Associate, DLA Piper
By Jana Sedlakova
The extent of control which individual EU member states can exert over online gambling and still comply with the principle of free movement of services is a highly contentious topic. Some states have come in for more criticism than others from the European Commission and gambling operators. At the heart of governments’ desire to control gambling is the preservation of national income and protection of state tax regimes.
Giulio Coraggio, Senior Associate at DLA Piper, confirmed that tax issues are at the forefront of factors driving regulatory developments. Concerning the Italian market in particular he said, “This is mainly the need from the Government to increase tax entries even if the tax entries from the online market are substantially lower than those generated from the land-based market. But the gambling sector contributes around € 9 billion to the budget of the country which is a huge amount for a sector which is still in its start-up phase.”
The Italian regulator Amministrazione Autonoma dei Monopoli di Stado (‘AAMS’) is amongst the most widely discussed bodies due to its protectionist approach to regulation. In particular, when it comes to remote services one can be sure that flexibility is required as technology advances almost daily. Politicians are unlikely to release their grip of income generation and control.
AAMS has recently advised the European Commission of its new draft bingo regulations.
As Coraggio explains in his blog
“[the draft seems] to be based on the same rationale of poker and casino regulations allowing a much higher level of flexibility in the offering of the game. Indeed they provide for a certification of the platform, of the RNG and of the games by an independent third party. Also, they do not contain any relevant restrictive provision in relation to the mechanic of the game which should allow bingo operators to launch the bingo variations currently offered on their foreign platform and prescribe a minimum price per card of € 0.01 and a maximum price of € 10 that might meet the needs of bingo operators which prefer a “soft game” approach. Also, it is made reference in the draft decree to some guidelines that AAMS is expected to issue together with the final version of the decree but according to the information currently available they should reproduce those applicable to casino and poker games.”
It is expected that the draft will be reviewed in mid-November 2012 and there is a good chance that the regulations will become enforceable soon after, subject to EC approval. Addressing the possibility of EC raising any issues, Coraggio believes that “the bingo regulations are based on the casino games regulations and, therefore, since the former have been already approved I do not anticipate issues with the bingo regulations. The sole issue I expect is the objection by companies running Lotto and totalizator games such as Superenalotto under an exclusive license which do not want bingo games to overlap their games.”
Whilst online gambling is still relatively new in Italy, the Italian gambling market is one of the largest gambling markets in Europe. The news earlier this year about betting exchange regulation combined with the new online bingo regulations and the introduction of online slot games represent significant changes in the last 12 months alone. The particular characteristic remains that the individuals that operators can target can only be domestic customers. The full benefits and effects on the already declining revenues will be seen months after the launch of the first games. Coraggio believes that “the major benefit of these new regulations is that they will make the offering from Italian licensed platforms equal to the one of foreign platforms which will reduce the black market that in the case of online slots is deemed to be around 70% – 80% of the licensed market. The weakness is given by the tax regime of activities like sports betting and bingo that are still based on the turnover rather than profits.”
The new rules have reportedly failed to address the tax rate [highly unprofitable] on turnover. Discussing this problem Giulio Coraggio commented: “Actually the taxation is 12% as there is an additional 1% to be paid as consideration for AAMS’ services. My view is that bingo can become successful only if the tax regime is switched from a turnover based regime to a gross profit regime as prescribed for casino games and cash poker games. Indeed, if the Government changes the tax regime for these games to a gross profit regime and obliges operators to adopt a minimum RTP [return to player] of around 90% we will have players winning more frequently than what happens now when the minimum RTP is 70%.”
Different questions arise when tax issues are discussed in relation to land-based operators.
Coraggio commented: “The tax regime for land-based games is higher because the turnover generated by such games is considerably higher and they do not have to compete with the black market made of a number of .COM foreign licensed websites whose operations are subject to a very friendly tax regime. The tax disparities, therefore, are justified in my view as the games are different.”
Concluding on the difficulties of implementing the regulatory requirements into the gambling operations and to ensure compliance, Coraggio explains “Italian regulatory requirements have historically been very complex to implement by operators especially because of the continuous monitoring of the game through the so called protocols of communications with the servers of AAMS. However the applicable requirements are becoming consistent across all the games making the life of operators much easier.”
Italy pioneered the model of e-gaming regulation in the middle of the last decade that is now becoming the ‘norm’ across Europe: issuing a blacklist of banned operators, permitting private companies to obtain local licences, higher tax rates (sometimes unsustainable for profitable operations), and phased introductions of gambling products. But what has been shown is that it is an evolving process as both regulators and operators discover what the market and players can tolerate.